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On July 22, 2024
3 Sources
[1]
Geopolitics is back to break markets' stride
NEW YORK/SINGAPORE - Politics has toppled global markets from record peaks and over a turbulent few weeks stepped to the fore as investors confront the prospect of an increasingly fractious Europe, isolationist America and a slowdown in the pulse of world trade. Geopolitics topped the risk list of sovereign money managers this year and, after a roaring rally, money is rushing out of potential flashpoints - such as Taiwan's stock market - and into havens such as gold, which hit an all-time high last week. The line of thinking is that a period of peace and free trade is finished and the next one looks less profitable. Nearly half the globe votes this year and results so far underpin the shift in mood: Taiwan elected a president detested in Beijing, voters lurched to the right in France and installed the largest left-wing majority in Britain for a generation. Over just eight days, the U.S. campaign trail created shock waves: frontrunner Donald Trump was grazed by a bullet and Joe Biden quit with less than four months to go until polling day. Markets are tuning in and the news has pulled geopolitical concerns to the front of investors' minds. "It is definitely one of the more important considerations we have been working into our process all year," said Erik Knutzen, multi-asset chief investment officer at Neuberger Berman, which manages $481 billion in assets. "The high-level way that that is being manifested is by assessing our overall portfolio risk levels," he said. "An environment of elevated geopolitical risk would lead you to turn that risk dial down." That has already been evident in prices as markets immediately focus on two potential pitfalls likely to be heightened by a Trump victory: inflation and restrictions or disruptions to semiconductor sales, particularly for Taiwan. Gold, considered an inflation hedge and a beneficiary of demand from central banks in a climate of mistrust, shot to a record high above $2,450 an ounce in the days after the attempt on Trump's life, an event that has galvanised his supporters. "All of Trump's policies are likely to be inflationary - be it tax cuts, immigration, or re-shoring, and hence dollar bearish...so the dollar is likely to depreciate against gold," said Prashant Kothaari, CEO at Alpha Alternatives. At the same time more than $100 billion has been wiped from the market value of Taiwan Semiconductor Manufacturing Co in less than a week after Trump sounded equivocal about his commitment to Taiwan's protection and chip industry. Goldman Sachs' cross-strait risk indicator, which analyses news, is below peaks but has rebounded over the past week. Taiwan's currency slumped to its lowest in more than eight years on Monday as investors fled the island which is at the forefront of chipmaking technology and the front line of U.S.-China tension. "The return of this geopolitical risk has effectively blunted enthusiasm for the AI hardware trade," said Norman Villamin, chief strategist at Union Bancaire Privée. TAIL RISK As money managers have become more certain of U.S. rate cuts in September and of a Republican White House, geopolitical concerns are seeping in to longer-term thinking about the globe's economic potential and risks building in the background. High interest rates are starting to bite and China's growth is slowing. There are wars in the Middle East and the fringe of Europe where major powers are lined up on opposite sides. "We see tensions remaining high and stemming policy consequences that will likely last the decade," said David Bianco, Americas chief investment officer at DWS. He mentioned energy and defence stocks and commodities including copper and uranium as being on the investing radar. French stocks have lagged Europe and sovereign debt hit its steepest discount on Germany in a dozen years on concerns a divided government will be euro-sceptic and struggle to repair the balance sheet. "We are underweight on France and Italian bonds as we think there will be political noise as they negotiate a lower budget deficit," said David Zahn, head of European fixed income at Franklin Templeton. To be sure, there is no sense of panic in the selling which has pushed the S&P 500 only some 3% from an all-time high, something many market participants see as a healthy pullback - rather a re-consideration of how to trade political risks. For now U.S. equities volatility, measured by the VIX index , is rising but low by historical standards and, as of early last week, there have been no dramatic flows into so called "tail-risk funds" designed to profit in a downturn. "Geopolitics is never the main focus of financial markets, which particularly for the equity market is always on interest rates and earnings growth," said Matt Sherwood, head of multi- asset investment strategy at Perpetual in Sydney. "But geopolitics is one of those issues that if it's triggered it can be a large left tail event," he said. "And so what an investor would need is a low-cost diversification strategy, which gives downside protection and upside potential." Presently, six-month options on wild moves in the market, such as a big drop in stocks or sudden shift in the dollar trade cheaply, suggesting they are unwanted. But there has been some recent buying and - as the lacklustre performance of Chinese equities attests - an ebbing in the optimism that has driven returns in previous cycles. Pankaj Agarwal, a portfolio manager at Singapore-based family office AT Capital, is hedging his bets by reducing cash equity exposures and buying call spreads on the index, a strategy which can cap gains but limit losses. Others are re-calibrating expectations for a more miserly future. "For thirty years, investors have benefitted from the greatest era of globalisation and geopolitical stability the world has seen," said Michael Rosen, chief investment officer of Angeles Investments in Santa Monica. "A new, riskier era has begun." (Additional reporting by Dhara Ranasinghe in London; Writing by Tom Westbrook; Editing by Jacqueline Wong)
[2]
Analysis-Geopolitics is back to break markets' stride
NEW YORK/SINGAPORE (Reuters) - Politics has toppled global markets from record peaks and over a turbulent few weeks stepped to the fore as investors confront the prospect of an increasingly fractious Europe, isolationist America and a slowdown in the pulse of world trade. Geopolitics topped the risk list of sovereign money managers this year and, after a roaring rally, money is rushing out of potential flashpoints - such as Taiwan's stock market - and into havens such as gold, which hit an all-time high last week. The line of thinking is that a period of peace and free trade is finished and the next one looks less profitable. Nearly half the globe votes this year and results so far underpin the shift in mood: Taiwan elected a president detested in Beijing, voters lurched to the right in France and installed the largest left-wing majority in Britain for a generation. Over just eight days, the U.S. campaign trail created shock waves: frontrunner Donald Trump was grazed by a bullet and Joe Biden quit with less than four months to go until polling day. Markets are tuning in and the news has pulled geopolitical concerns to the front of investors' minds. "It is definitely one of the more important considerations we have been working into our process all year," said Erik Knutzen, multi-asset chief investment officer at Neuberger Berman, which manages $481 billion in assets. "The high-level way that that is being manifested is by assessing our overall portfolio risk levels," he said. "An environment of elevated geopolitical risk would lead you to turn that risk dial down." That has already been evident in prices as markets immediately focus on two potential pitfalls likely to be heightened by a Trump victory: inflation and restrictions or disruptions to semiconductor sales, particularly for Taiwan. Gold, considered an inflation hedge and a beneficiary of demand from central banks in a climate of mistrust, shot to a record high above $2,450 an ounce in the days after the attempt on Trump's life, an event that has galvanised his supporters. "All of Trump's policies are likely to be inflationary - be it tax cuts, immigration, or re-shoring, and hence dollar bearish...so the dollar is likely to depreciate against gold," said Prashant Kothaari, CEO at Alpha Alternatives. At the same time more than $100 billion has been wiped from the market value of Taiwan Semiconductor Manufacturing Co in less than a week after Trump sounded equivocal about his commitment to Taiwan's protection and chip industry. Goldman Sachs' cross-strait risk indicator, which analyses news, is below peaks but has rebounded over the past week. Taiwan's currency slumped to its lowest in more than eight years on Monday as investors fled the island which is at the forefront of chipmaking technology and the front line of U.S.-China tension. "The return of this geopolitical risk has effectively blunted enthusiasm for the AI hardware trade," said Norman Villamin, chief strategist at Union Bancaire Privée. TAIL RISK As money managers have become more certain of U.S. rate cuts in September and of a Republican White House, geopolitical concerns are seeping in to longer-term thinking about the globe's economic potential and risks building in the background. High interest rates are starting to bite and China's growth is slowing. There are wars in the Middle East and the fringe of Europe where major powers are lined up on opposite sides. "We see tensions remaining high and stemming policy consequences that will likely last the decade," said David Bianco, Americas chief investment officer at DWS. He mentioned energy and defence stocks and commodities including copper and uranium as being on the investing radar. French stocks have lagged Europe and sovereign debt hit its steepest discount on Germany in a dozen years on concerns a divided government will be euro-sceptic and struggle to repair the balance sheet. "We are underweight on France and Italian bonds as we think there will be political noise as they negotiate a lower budget deficit," said David Zahn, head of European fixed income at Franklin Templeton. To be sure, there is no sense of panic in the selling which has pushed the S&P 500 only some 3% from an all-time high, something many market participants see as a healthy pullback - rather a re-consideration of how to trade political risks. For now U.S. equities volatility, measured by the VIX index, is rising but low by historical standards and, as of early last week, there have been no dramatic flows into so called "tail-risk funds" designed to profit in a downturn. "Geopolitics is never the main focus of financial markets, which particularly for the equity market is always on interest rates and earnings growth," said Matt Sherwood, head of multi- asset investment strategy at Perpetual in Sydney. "But geopolitics is one of those issues that if it's triggered it can be a large left tail event," he said. "And so what an investor would need is a low-cost diversification strategy, which gives downside protection and upside potential." Presently, six-month options on wild moves in the market, such as a big drop in stocks or sudden shift in the dollar trade cheaply, suggesting they are unwanted. But there has been some recent buying and - as the lacklustre performance of Chinese equities attests - an ebbing in the optimism that has driven returns in previous cycles. Pankaj Agarwal, a portfolio manager at Singapore-based family office AT Capital, is hedging his bets by reducing cash equity exposures and buying call spreads on the index, a strategy which can cap gains but limit losses. Others are re-calibrating expectations for a more miserly future. "For thirty years, investors have benefitted from the greatest era of globalisation and geopolitical stability the world has seen," said Michael Rosen, chief investment officer of Angeles Investments in Santa Monica. (Additional reporting by Dhara Ranasinghe in London; Writing by Tom Westbrook; Editing by Jacqueline Wong)
[3]
Geopolitics is back to break markets' stride
NEW YORK/SINGAPORE, July 22 (Reuters) - Politics has toppled global markets from record peaks and over a turbulent few weeks stepped to the fore as investors confront the prospect of an increasingly fractious Europe, isolationist America and a slowdown in the pulse of world trade. Geopolitics topped the risk list of sovereign money managers this year and, after a roaring rally, money is rushing out of potential flashpoints - such as Taiwan's stock market - and into havens such as gold, which hit an all-time high last week. The line of thinking is that a period of peace and free trade is finished and the next one looks less profitable. Nearly half the globe votes this year and results so far underpin the shift in mood: Taiwan elected a president detested in Beijing, voters lurched to the right in France and installed the largest left-wing majority in Britain for a generation. Over just eight days, the U.S. campaign trail created shock waves: frontrunner Donald Trump was grazed by a bullet and Joe Biden quit with less than four months to go until polling day. Markets are tuning in and the news has pulled geopolitical concerns to the front of investors' minds. "It is definitely one of the more important considerations we have been working into our process all year," said Erik Knutzen, multi-asset chief investment officer at Neuberger Berman, which manages $481 billion in assets. "The high-level way that that is being manifested is by assessing our overall portfolio risk levels," he said. "An environment of elevated geopolitical risk would lead you to turn that risk dial down." That has already been evident in prices as markets immediately focus on two potential pitfalls likely to be heightened by a Trump victory: inflation and restrictions or disruptions to semiconductor sales, particularly for Taiwan. Gold , considered an inflation hedge and a beneficiary of demand from central banks in a climate of mistrust, shot to a record high above $2,450 an ounce in the days after the attempt on Trump's life, an event that has galvanised his supporters. "All of Trump's policies are likely to be inflationary - be it tax cuts, immigration, or re-shoring, and hence dollar bearish...so the dollar is likely to depreciate against gold," said Prashant Kothaari, CEO at Alpha Alternatives. At the same time more than $100 billion has been wiped from the market value of Taiwan Semiconductor Manufacturing Co (2330.TW), opens new tab in less than a week after Trump sounded equivocal about his commitment to Taiwan's protection and chip industry. Goldman Sachs' cross-strait risk indicator, which analyses news, is below peaks but has rebounded over the past week. Taiwan's currency slumped to its lowest in more than eight years on Monday as investors fled the island which is at the forefront of chipmaking technology and the front line of U.S.-China tension. "The return of this geopolitical risk has effectively blunted enthusiasm for the AI hardware trade," said Norman Villamin, chief strategist at Union Bancaire Privée. TAIL RISK As money managers have become more certain of U.S. rate cuts in September and of a Republican White House, geopolitical concerns are seeping in to longer-term thinking about the globe's economic potential and risks building in the background. High interest rates are starting to bite and China's growth is slowing. There are wars in the Middle East and the fringe of Europe where major powers are lined up on opposite sides. "We see tensions remaining high and stemming policy consequences that will likely last the decade," said David Bianco, Americas chief investment officer at DWS. He mentioned energy and defence stocks and commodities including copper and uranium as being on the investing radar. French stocks (.FXHI), opens new tab have lagged Europe (.STOXXE), opens new tab and sovereign debt hit its steepest discount on Germany in a dozen years on concerns a divided government will be euro-sceptic and struggle to repair the balance sheet. "We are underweight on France and Italian bonds as we think there will be political noise as they negotiate a lower budget deficit," said David Zahn, head of European fixed income at Franklin Templeton. To be sure, there is no sense of panic in the selling which has pushed the S&P 500 only some 3% from an all-time high, something many market participants see as a healthy pullback - rather a re-consideration of how to trade political risks. For now U.S. equities volatility, measured by the VIX index (.VIX), opens new tab, is rising but low by historical standards and, as of early last week, there have been no dramatic flows into so called "tail-risk funds" designed to profit in a downturn. "Geopolitics is never the main focus of financial markets, which particularly for the equity market is always on interest rates and earnings growth," said Matt Sherwood, head of multi- asset investment strategy at Perpetual in Sydney. "But geopolitics is one of those issues that if it's triggered it can be a large left tail event," he said. "And so what an investor would need is a low-cost diversification strategy, which gives downside protection and upside potential." Presently, six-month options on wild moves in the market, such as a big drop in stocks or sudden shift in the dollar trade cheaply, suggesting they are unwanted. But there has been some recent buying and - as the lacklustre performance of Chinese equities attests - an ebbing in the optimism that has driven returns in previous cycles. Pankaj Agarwal, a portfolio manager at Singapore-based family office AT Capital, is hedging his bets by reducing cash equity exposures and buying call spreads on the index, a strategy which can cap gains but limit losses. Others are re-calibrating expectations for a more miserly future. "For thirty years, investors have benefitted from the greatest era of globalisation and geopolitical stability the world has seen," said Michael Rosen, chief investment officer of Angeles Investments in Santa Monica. "A new, riskier era has begun." Additional reporting by Dhara Ranasinghe in London; Writing by Tom Westbrook; Editing by Jacqueline Wong Our Standards: The Thomson Reuters Trust Principles., opens new tab Tom Westbrook Thomson Reuters Tom reports from Singapore on financial markets in Asia, filing daily market reports and deeper pieces on stock, bond and foreign exchange trade. He contributes to the Morning Bid newsletter. He was previously a company and general news correspondent in Sydney and a reporter for News Ltd.
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Global markets face renewed pressure as geopolitical risks reemerge, challenging the recent optimism fueled by AI advancements and economic recovery hopes. Investors grapple with uncertainties surrounding US-China relations and potential conflicts.
After a period of relative calm, geopolitical tensions have once again taken center stage in the global financial markets. The recent optimism fueled by artificial intelligence (AI) advancements and hopes of economic recovery is now being tempered by renewed concerns over international relations and potential conflicts 1.
One of the primary focal points of geopolitical tension is the relationship between the United States and China. The ongoing disputes over trade, technology, and regional influence continue to cast a shadow over market sentiment. Investors are closely monitoring developments, particularly in the semiconductor industry, where restrictions on chip exports to China have raised concerns about potential retaliation and further escalation of tensions 2.
The technology sector, especially semiconductor companies, finds itself at the crossroads of this geopolitical standoff. Taiwan Semiconductor Manufacturing Co (TSMC), a key player in the global chip supply chain, has become a focal point of these tensions. The company's strategic importance in producing advanced chips has led to increased scrutiny and potential risks to its operations and market position 3.
As geopolitical risks resurface, market participants are reassessing their positions and risk appetites. The initial enthusiasm driven by AI developments and economic recovery prospects is now being balanced against the potential negative impacts of international tensions. This shift in sentiment has led to increased volatility in equity markets and a more cautious approach from investors 1.
The resurgence of geopolitical concerns extends beyond just market sentiment. There are growing worries about the potential impact on global trade, supply chains, and economic growth. The interconnected nature of the global economy means that tensions between major powers can have far-reaching consequences, affecting everything from commodity prices to currency markets 2.
As markets grapple with these renewed geopolitical risks, investors and analysts are closely watching for any signs of de-escalation or further deterioration in international relations. The ability of global leaders to navigate these complex issues will likely play a crucial role in shaping market trends and economic outcomes in the coming months 3.
Reference
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[3]
Asian stock markets experienced a sharp decline as trade tensions escalated and the Japanese yen strengthened. Concerns over potential U.S. trade restrictions on China and their impact on the global semiconductor industry have rattled investors.
11 Sources
Gold and oil prices fluctuate as investors weigh geopolitical risks in the Middle East and potential US interest rate changes. Asian stocks decline amid growing concerns over regional conflicts.
15 Sources
Global stock markets experience a significant downturn as fears of a US recession intensify. The tech sector leads the decline, with major companies facing substantial losses.
9 Sources
As Nvidia's AI chips face supply constraints and export restrictions, countries and tech giants are scrambling to develop domestic alternatives, reshaping the global semiconductor landscape.
3 Sources
Global stock markets experienced a significant downturn as fears of a potential recession and concerns about the technology sector's performance gripped investors. The sell-off was particularly pronounced in Europe and Asia, with major indices recording substantial losses.
3 Sources